I have a CPFF contract that requires DBA insurance. The contractor estimates thier payroll to the insurance company and is charged a premium based on the estimate. Then at the end of the year or performance period they audit the companies payroll and determine the actual cost of the insurance premium. We have always accepted an invoice with the proof of incurred cost from the contractor and then at the end of the year made sure they reconcilled and we usually get a small refund but could possibly owe. So there was two invoices per year or POP backed up by supporting docs from the insurance company. Simple process.

Someone just challenged this process to say we should not be paying the tentative insurance to the prime because we have not received the labor that it covers yet. The person challenging us says that it is OK to prepay insurance on a prime contract between us and an insurance company but not prepay the premium paid by the prime to a insurance firm.

They think the vendor should multiply wages by the insurance rate and bill it every month with the invoice for fixed unit price labor. Then the insurance is spread out over many invoices and their is no supporting document to match to it. Seems overly complicated and less supported to me.

In 15 years, I have never even thought that the process was wrong. Long story for a short question: Can we pay the tentative insurance premium using the primes proof of payment prior to the labor being performed or is this considered an advance payment?

Boof,

I think whomever suggested the alternative to you is ... um, well, let's just say not right in the head.

The contract pays an insurance premium and it's recorded on the books as an expense in accordance with GAAP, past accounting practices, and perhaps in accordance with a Disclosure Statement (Part VII). When the contractor records the expense, you pay it if it's allowable and reasonable in amount.

It really is that simple.

All the folderol about receipt of labor is nonsense.

Hope this helps.

Thanks H2H.

It was my opinion that it was not an issue. You agreed and now my legal advisor has also agreed. I am setting the person who objected straight. I just wanted to be sure of my interpretation.